Canada missing $145 billion in infrastructure due to underfunding: study

January 24, 2013

OTTAWA—Underinvestment in infrastructure is not a crisis but a chronic problem in Canada, says a new study by the Canadian Centre for Policy Alternatives (CCPA).

The study, by economist and CCPA Research Associate Hugh Mackenzie, reveals the extent of underinvestment in infrastructure over the past four decades and makes recommendations on how to close the infrastructure funding gap.

“The cumulative effect of this underinvestment means we are missing $145 billion worth of infrastructure,” says Mackenzie. “That’s a lot of new roads, bridges, and buildings we’re missing—not to mention missing maintenance on our existing infrastructure.”

According to the study, public investment in general infrastructure peaked at just over 3% of GDP in the late 1950s and then declined steadily until the mid-2000s, before the federal-provincial economic stimulus program temporarily reversed the trend. However, it would require an additional $20-30 billion a year for ten years on top of current spending to return infrastructure funding to historic levels.

“When it comes to Canada’s physical infrastructure, the federal government has the money; the provincial governments have the constitutional authority; and local governments have the responsibility for making the actual investments,” Mackenzie says. “But the shift in responsibility for public capital investment from senior governments to local governments has not been matched by corresponding increases in transfer payments.”

The study identifies obstacles, other than the obvious financial ones, that must be addressed in order to close the infrastructure funding gap and makes several recommendations, including:

Allowing local governments to have a direct financial relationship with the federal government.

Allowing governments providing transfer payment funding for capital to account for those payments as capital expenditures to be amortized over time.

Developing a robust and transparent governance structure that can resist the tendency to use infrastructure funding as a political pork barrel or to use that funding as a lever for ideological agendas such as public-private partnerships or the privatization of public services.

“Canada’s infrastructure crisis is in decision making and in the fiscal and governance structure within which those decisions are being made—or more precisely, not being made,” Mackenzie concludes.

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Canada’s Infrastructure Gap: Where It Came From and Why It Will Cost So Much To Fix It is available on the CCPA website: http://policyalternatives.ca